There were also hopes that Friday's data on the labour market will bring more good news.

'You saw a reversal from the sell-off to the upside and that is caused by rumors that the employment numbers are going to be better than expected,' said Keith Keenan, vice president of institutional trading at Wall Street Access.

The Dow Jones Industrial Average was up 150.35 points, or 1.6%, to 9350.40 by mid-session and the technology-laced Nasdaq 34.78 points, or 2%, to 1755.69

The Commerce Department reported that the economy, as measured by gross domestic product, grew at an annual rate of 2.4% in the second quarter, well ahead of the 1.5% economists had forecast and the 1.4% in each of the previous two quarters.

War with Iraq propelled defence spending 44%, the biggest rise since the 110% jump in 1951, during the Korean War. Consumer spending rose 3.3%, while business investment surged 6.9% after falling 4.4% in the previous quarter.

Meanwhile, new applications filed last week for unemployment benefits fell by 3,000 to a five-month low of 388,000. It was the third straight week that jobless claims declined and suggested that the labor market is stabilizing.

Tech stocks were boosted by Merrill Lynch, which upgraded its stance on the semiconductor business, raising ratings for Intersil, Linear Technology, National Semiconductor and others to 'buy' from 'neutral'.